By Sara Sjolin, MarketWatch , Hiroyuki Kachi

Offshore yuan jumps most against the dollar in a year

The dollar continued to its sharp move lower on Thursday, extending weakness from the prior session when Federal Reserve minutes pointed to a number of risks that could change the path for interest rates.

The ICE Dollar Index slumped 0.7% to 102.02 as the greenback retreated against most major currencies.

Against the yen, the dollar fell to Yen116.36 from Yen117.24 late Wednesday in New York. The euro rose to $1.0520, from $1.0490 on Wednesday.

"Recent dollar-buying is taking a breather," said Daiwa Securities senior FX strategist Yukio Ishizuki, suggesting that the Fed comments may be providing traderswith a chance to peg back their bullish stance on the dollar ahead of U.S. jobs data later in the week.

While dip-buying may help support the dollar's downside, "I don't think investors will aggressively take new positions" ahead of the jobs data on Friday, Ishizuki added.

The U.S. currency started to come under heavy selling pressure on Wednesday after minutes from the Fed's Dec. 13-14 meeting (http://www.marketwatch.com/story/interest-rate-hikes-might-come-at-faster-pace---fed-minutes-show-2017-01-04) showed central bankers grappling with "considerable uncertainty" about the new U.S. administration's possible impact on the economy.

The officials "pointed to a number of risks that, if realized, might call for a different path of policy than the currently expected," the minutes read. The Fed has penciled in three rate hikes in 2017, according to the so-called dot plot of forecasts.

The policy makers' debate about the potential impactof Trump's planned fiscal stimulus suggests Fed policy may be tighter than expected in 2017 -- a view that fits in with a sustained rally in the dollar since Trump's election victory.

But the market appears to have focused on the "considerable uncertainty" comment, driving U.S. bond yields and the U.S. dollar lower overnight, said Rodrigo Catril, currency strategist at National Australia Bank.

The morning's sharp move in the U.S. dollar appears to have been triggered by a drop in U.S. 10-year bond yields , Catril said. A move lower in U.S. yields is driving the U.S. dollar lower across the board, with the yen leading the way, he added.

In other currencies, China's yuan jumped by the most against the dollar in a year in offshore trade (http://www.cnbc.com/2017/01/04/chinas-offshore-yuan-surges-most-against-dollar-in-a-year.html), according to media reports. The greenback bought as little as 6.8071 yuan, the lowest since November. In other China news, overnight yuan borrowing costs in Hong Kong rose to 38.3% on Thursday, the second-highest level on record, The Wall Street Journal reported (http://www.wsj.com/articles/offshore-yuan-borrowing-rate-jumps-to-second-highest-level-1483595388?mod=wsj_nview_latest).

The pound fell to $1.2288, down from $1.2321 late Wednesday in New York.

(END) Dow Jones Newswires

January 05, 2017 04:26 ET (09:26 GMT)

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